Sandy Takes Toll on Spending; No Growth in Income

U.S. consumer spending fell in October for the first time in five months as Superstorm Sandy choked off car sales, suggesting slower economic growth in the fourth quarter.

The Commerce Department said on Friday consumer spending fell 0.2 percent after a 0.8 percent increase in September. It said Sandy had impacted on income growth last month, but it had made adjustments to wages for storm-related work interruptions.

Economists polled by Reuters had expected consumer spending, which accounts for 70 percent of U.S. economic activity, would be flat last month. While the storm slammed the brakes on automobile purchases, the drop in overall spending was in part a reflection of weak economic fundamentals.

"The report reinforces the fact that U.S. growth in Q4 would be weak," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

U.S. government debt prices rose modestly on the data, while the dollar pared losses versus the euro. Stock futures held steady at higher levels.

When adjusted for inflation, consumer spending fell 0.3 percent, the first decline since June, after rising 0.4 percent the prior month.

It was also the largest decline since September 2009 and implied growth in consumer spending this quarter would struggle to exceed the third-quarter's 1.4 percent annual pace, which was the slowest in more than a year.

Consumer Spending Down 0.2% in October

CNBC's Rick Santelli breaks down the latest numbers on personal income and spending with CNBC's Steve Liesman.

While the economy grew 2.7 percent in the third quarter after advancing 1.3 percent in the prior three months, much of the boost came from the restocking of goods and robust government spending. That is likely to be lost in the final three months of the year. (Read More: GDP Growth Pushed Up to 2.7%; Jobless Claims Slip)

Growth could also be pressured by the lingering effects of the storm and automatic deep cuts to government spending and tax increases that could drain $600 billion from the economy early next year unless Congress and the Obama administration agree on a less-severe plan to cut budget deficits.

Income was unchanged in October for the first time since April and followed a 0.4 percent gain in September. The department said private wages and salaries fell, reflecting work interruptions caused by Sandy.

The amount of income at the disposal of households after inflation and taxes dipped 0.1 percent after being flat in September. Despite weak income growth, the saving rate rose to 3.4 percent from 3.3 percent the prior month.

In the 12 months through October, the PCE index rose 1.7 percent, the largest gain since April, after increasing 1.6 percent in September.

A core measure that strips out food and energy costs gained 0.1 percent after a similar rise in September. In the 12 months to October, the core PCE index increased 1.6 percent after advancing by the same margin in September.

The Federal Reserve has a 2 percent inflation arget and the moderate rise in core inflation should offer comfort to the central bank, which has been buying $40 billion in mortgage-backed debt each month in an effort to push borrowing costs lower and spur faster job growth.